Calculating the Cost of a Software Failure


In today’s technologically-driven manufacturing landscape, robust, efficient, and reliable software systems serve as the backbone of operational success. They not only streamline production processes, but also foster innovation, enhance cost-efficiency, and enable organizations to stay competitive. However, when these systems, especially those tailored to specific business needs, become outdated, they transform from an asset to a potential liability.

Businesses often commission custom software because off-the-shelf solutions cannot fully address their unique operational needs. However, the transition or turnover of the original developers can pose a significant challenge. Without the ‘knowledge keepers’ available for maintenance or upgrades, the custom software begins to age, gradually becoming a ticking time bomb poised to disrupt business operations when least expected.

The peril of downtime—a period when a system is unavailable or offline—is a looming reality for organizations relying on such outdated custom software. Downtime can lead to halted production, delayed deliveries, lost revenue, tarnished reputations, and even regulatory compliance issues in certain industries. Furthermore, the adverse impact extends beyond the tangible. Downtime can breed frustration among employees and create an environment of uncertainty that can stifle growth and innovation.

This white paper aims to bring these concerns to light. It provides an in-depth examination of the real cost of downtime for manufacturing companies relying on outdated custom software. By outlining areas of impact, providing examples, and showcasing the calculations of downtime costs, we intend to equip businesses with the knowledge they need to take proactive steps.

The goal is not to create fear, but to inspire action. By understanding the possible consequences and the potential price tag attached to outdated software and associated downtime, businesses can make informed decisions. Decisions that can ultimately lead to more efficient operations, better customer satisfaction, and, above all, uninterrupted business continuity.

The journey towards modernization and stability might seem daunting, but it’s an essential one. This white paper serves as a first step on that path, highlighting the importance of software revival and ongoing support for custom systems—an approach that could save organizations from significant risk, expense, and potential catastrophe.

Section 1: Understanding the Cost of Downtime

In an ideal world, a manufacturing company’s operations would run like a well-oiled machine, with every component, including its custom software, functioning seamlessly in harmony. But in reality, the threat of system downtime is a constant risk, especially for those who rely on outdated custom software.

What is Downtime?

Downtime is a period when a system is unavailable or offline due to either planned (e.g., maintenance, updates) or unplanned (e.g., system failure, cyber-attacks) circumstances. While planned downtime can be managed without major disruptions, it’s the unexpected, unplanned downtime that brings about significant challenges. In the context of custom software, this could mean an unexpected system crash or a gradual decrease in system performance due to outdated software components that fail to integrate properly with newer ones. 

The Multifaceted Impact of Downtime

The impact of software downtime is not limited to the immediate operational disruption; it reverberates across several aspects of a business, some of which might not be immediately apparent. The direct costs include loss in production, idle workforce hours, and potential recovery expenses. Indirect costs can range from lost business opportunities, damage to customer relationships, and a hit to the company’s reputation. 

For manufacturing companies, where precision, efficiency, and timely delivery are paramount, downtime can lead to significant losses. Moreover, the repercussions can be even more severe if the company operates in a highly regulated industry, where compliance issues due to downtime can result in hefty fines or legal penalties.

The Snowball Effect

The cost of downtime can also snowball over time. What might seem like a minor glitch can compound and result in more severe system failure if left unchecked. For example, a slowdown in software performance can lead to minor production delays initially. But, if the root cause—an outdated piece of software—is not addressed, the system may eventually fail, leading to significant production halts. This type of progressive failure not only increases the cost of downtime but also makes recovery more complex and expensive.

In the next sections, we will delve deeper into the specific areas of impact that downtime can have on a manufacturing business. We will use real-world examples and hypothetical scenarios to illustrate these impacts, providing a clearer understanding of what’s at stake when relying on outdated custom software. By understanding the potential costs, businesses can better appreciate the urgency of reviving, rebuilding, or modernizing their critical software systems.


Section 2: Areas of Impact

Software downtime in a manufacturing environment has a ripple effect, impacting various areas of the business. Below, we delve into these impacts in more detail, including operational efficiency, financial implications, customer relationships, and employee productivity.

Operational Efficiency

Outdated software can cause various operational inefficiencies, including system crashes, slow processing speeds, and compatibility issues with newer systems. As the system struggles to perform, production rates decline, and manufacturing timelines are thrown off balance. 

For example, imagine a manufacturer relying on a custom software application to manage their assembly line. If the software becomes unresponsive due to its outdated infrastructure, the assembly line halts, leaving machines idle and workers without direction. This situation can create bottlenecks in the production process, leading to delayed orders and, in severe cases, complete operational standstill.

Financial Impact

The financial implications of software downtime can be significant. Direct costs often include lost revenue due to halted production, but there are additional, often overlooked, expenses. These can involve the cost of diagnosing and repairing the issue, possibly involving external IT consultants if in-house expertise is insufficient. Furthermore, if the downtime leads to missed deadlines, there might be penalties to pay, or in extreme cases, lawsuits to face.

Consider the hypothetical case of a manufacturer that uses a custom software system to monitor and control its automated production line. An unexpected software failure causes a two-day halt in production. With an output of 1,000 units per day at a price of $50 per unit, the direct loss in revenue is $100,000. However, when adding the cost of external IT consultants, overtime pay for employees to catch up on production, and potential penalties for missed deadlines, the total cost could easily escalate.

Customer Relations and Business Reputation

In today’s competitive market, maintaining strong customer relations is crucial. Software downtime leading to delays or errors in production can erode the trust that customers have in a business. Repeated instances of downtime can even lead to the loss of customers to competitors, translating into long-term revenue loss.

Moreover, frequent software-related issues can damage a company’s reputation. Word-of-mouth travels fast, especially in the digital age. If customers begin to associate a brand with unreliability due to frequent production issues rooted in software downtime, it can deter potential customers and partnerships, stifling future growth opportunities.

Employee Productivity

Software downtime doesn’t just impact systems; it affects people too. When systems are down, employees often cannot carry out their tasks, leading to idle time. Moreover, persistent system issues can lead to frustration and decreased morale among the workforce, impacting overall productivity.

Let’s consider a manufacturer whose custom software manages their inventory. During an unexpected software downtime, workers cannot access crucial data, leading to confusion and delay in their tasks. The workers’ productivity drops, and their time is wasted. Over time, constant disruptions may lower their morale, further reducing their efficiency.

Understanding these potential impacts can help organizations appreciate the gravity of the situation and the urgent need to update and maintain their custom software. In the next section, we will explore real-life and hypothetical scenarios further demonstrating these impacts.


Section 3: Calculating the Cost of Downtime

The actual cost of software downtime can vary significantly between businesses, depending on factors like the nature of the software, the scope of its use within the company, the industry in which the company operates, and the specifics of the downtime incident. Despite these variations, it’s useful to have a general formula that businesses can adapt to their particular circumstances. 

Below is a step-by-step guide on how to calculate the cost of downtime:


Calculate Lost Revenue

Begin by calculating the revenue you typically generate in a given period (e.g., per hour or per day). Then, multiply this by the number of hours or days the system was down. 

For example, if you typically generate $10,000 per hour and experience 8 hours of downtime, your lost revenue would be $80,000.

Consider Additional Costs

Next, add any additional costs associated with the downtime. These might include:

   – Overtime pay for employees to catch up on lost work

   – Repair and recovery costs for the software

   – External consulting fees if required to fix the issue

Keep in mind that these costs can be harder to calculate and might require some estimation.

Account for Long-term Impacts

Finally, consider any long-term impacts that might result from the downtime. These might include:

   – The cost of lost customers if they choose to leave due to the downtime

   – The potential impact on your company’s reputation

   – Lost business opportunities if the downtime affected your ability to take on new orders or clients

These costs are challenging to quantify precisely but are crucial to consider when calculating the full cost of downtime.

While this formula can provide a rough estimate of the potential cost of downtime, remember that every situation is unique. A comprehensive analysis of your company’s operations, including your reliance on custom software and the potential for downtime, will provide a more accurate picture.

Let’s take a hypothetical example to understand this process better:

Suppose a manufacturer “MFG Corp.” typically generates $20,000 per hour in revenue. If they experience a software failure that results in 10 hours of downtime, their lost revenue would be $200,000. In addition, they had to pay an IT consultancy $10,000 to fix the software, resulting in total direct costs of $210,000. 

Now, considering long-term impacts, they lost a key client due to this incident, who typically accounted for 10% of their annual revenue of $20 million – a potential future revenue loss of $2 million. While it might not be entirely accurate to consider this whole amount as a downtime cost, it provides an indication of potential long-term financial impacts.

The next section will introduce how companies like yours can proactively mitigate these risks through software revival and ongoing support, providing a more stable and secure operational environment.


Section 4: The Solution: Reviving and Supporting Your Custom Software

Having now explored the significant impacts and costs associated with software downtime in a manufacturing setting, the path forward becomes clear: It is crucial to revive and provide ongoing support for your custom software. The risks of not doing so, both financially and operationally, are simply too great to ignore.

Revival or Rebuilding

The first step to safeguarding your operations is to examine your existing software and evaluate its current state. Sometimes, a thorough update and a few improvements can bring the software back to optimal performance levels—this is what we refer to as ‘reviving’ the software. 

In other cases, where the software might be too outdated or have structural issues, a complete rebuild might be necessary. Though this may seem daunting, with the right experts, it can be an opportunity to enhance your system and make it more adaptable for future requirements.

Ongoing Support

Reviving or rebuilding software isn’t a one-time solution. Software, much like any other tool, requires regular maintenance to function effectively. For custom software, especially, regular updates and maintenance can be crucial due to its specific design and unique features. 

Ongoing support means having a team continuously monitor your software, promptly addressing any minor issues before they balloon into significant problems that cause downtime. This team can also keep the software updated to maintain compatibility with other systems and ensure it continues to serve your evolving business needs.

Investing in the Future

While there is certainly a cost associated with reviving or rebuilding software and providing it ongoing support, it is an investment in your company’s future. As we have seen, the cost of potential downtime can far exceed these proactive measures.

Moreover, keeping your custom software updated and well-maintained brings additional benefits. It can improve operational efficiency, foster innovation by introducing new features and capabilities, and give you a competitive edge by ensuring your unique operational needs are met effectively.

Reviving and supporting your custom software isn’t just about avoiding the pitfalls of downtime; it’s about setting your business up for success. It’s about ensuring that the tools you rely on to run your business operations are not just operational, but optimized and prepared for the future. 

In our concluding section, we will recap the significant points from this white paper and provide a call-to-action for manufacturing companies that rely on custom software for their operations.


Conclusion: Moving from Risk to Opportunity

The implications of software downtime in a manufacturing setting extend beyond the immediate operational disruption. The ripple effect impacts various areas of your business, including financial performance, customer relations, and employee productivity. As evidenced by real-life and hypothetical case studies, the cost of downtime can be significant, encompassing both direct costs and long-term impacts such as lost clients and damaged reputation.

However, the picture need not be so grim. By understanding the potential costs and consequences, manufacturing companies can convert this risk into an opportunity. Instead of waiting for your outdated custom software to fail, you can take proactive steps to secure your operations and set your business up for future success.

Invest in Your Custom Software

If your business relies on custom software, we urge you to view it not as an impending liability but as a vital asset that deserves investment. Reviving or rebuilding your software and ensuring ongoing support is an investment in your business’s resilience and future growth. 

By ensuring your software is up-to-date, secure, and running smoothly, you can focus on your core business operations without the constant worry of potential software failure. You can save valuable resources, avoid unnecessary downtime costs, improve operational efficiency, and maintain the trust of your customers.

At OneMotion, we are committed to helping businesses like yours turn software risk into business opportunity. We have the expertise and experience to guide you through the process of reviving or rebuilding your custom software and providing a support program that keeps it running smoothly.

Don’t let outdated software dictate your company’s future. Contact us today, and together, let’s ensure your business is powered by software that is reliable, efficient, and prepared for the future.

Remember, software is not just a tool; it’s an integral part of your operations. Make sure it’s a part that propels you forward, not one that holds you back.

Related Posts